Chptr 2 questions

17_economics

3

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3. Using the midpoint method The following graph shows two known points (X and Y) on a demand curve for oranges.

3.1 BAD Enterprises is considering increasing the price of its harmonicas,currently $20, by 25 per cent. BAD’s current revenue is $12,000 a month,and the PED for its harmonicas is estimated to be  1.8.a. Calculate the effect of the price change on BAD’s revenue.b. BAD now considers increasing its advertising budget to restore its salesrevenue to its previous level. BAD is currently spending $1,500 a monthon advertising and estimates its AED to be 1.5. What will its new budgethave to be?c. What can you say about what will happen to profit in both (a) and (b)compared with the original level of profit? 3.5 MK Corp estimates that its demand function is as follows:Q ¼ 400   12:5P þ 25A þ 14Y þ 10P where Q is the quantity demanded per month, P is the product’s price(in $), A is the firm’s advertising expenditure (in $’000 per month), Y is percapita disposable income (in $’000), and P * is the price of AJ Corp.a. During the next five years, per capita disposable income is expected toincrease…

3. If the price in a market is increased above that at the mid-point along the demand curve, total revenue to the firm will decreases.

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4. The following problems are based on the demand and supply schedule for gum listed below. All quantities are in millions of packs of gum per month. Quantity Demanded 180 Price |Quantity Supplied $0.20 30 60 90 $030 160 $0.40 140 $0.50 120 120 $0.60 100 140 $0.70 80 160 $0.80 60 180 a) Suppose that the quantity demanded rises by 40 million packs of gum per month at each price. b) Draw the initial demand and supply curves as given by the table above. Call this graph Graph 1. Label this demand curve D1, and this supply curve S1. Draw the new demand curve given by this change, labeling it D2. Show the new equilibrium price and output, labeling this point A. Suppose that the quantity supplied rises by 50 million packs per month at each price, while the quantities demanded retain their D1 values. On a new graph (labeled as Graph 2), draw D1, S1, and the new supply curve, S2. Show the new equilibrium output and price, labeling this point C.

3. Two companies simultaneously determine the effect of a price increase on their total revenues. One finds total revenue will fall, while the other finds total revenue will rise. Explain how this could occur in the case where they produce same good and have the same type of customers. 0.ffer e chye (or samr

3. Using the midpoint method The following graph gives two points (A and B) along a hypothetical demand curve for seitan. PRICE (Dollars per pound) 12 11 10 9 8 3 2 1 0 0 I B ++ 1 " I A Demand 10 20 30 40 50 60 70 80 90 100 110 QUANTITY (Thousands of pounds of seitan) (? Using the midpoint method, the price elasticity of demand for seitan between point A and point B is approximately demand for seitan is between points A and B. . This indicates that

Problem 3-1 [Algorithmic] Suppose there are three buyers of candy in a market: Tex. Dex, and Rex. The market demand and the individual demands of Tex, Dex and Rex for candy are given in the table below. a. Fill in the table for the missing values Two De Rex Price per Candy Total Quantity Demanded Qu 94 fa 116 3 3 2 15 S 4 15 14 5 10 22 11 14 29 9 12 11 38 7165 b. () Which buyer demands the least at a price of $13? [(Click to select) (1) Which buyer demands the most at a price of $15? (Click to select) e. Which buyer's quantity demanded increases the most when the price is lowered from $15 to $14 (n absolute terms)? [Click to select) d. () Which direction would the market demand curve shift if Tex withdrew from the market? (Click to select) Which direction would the market demand curve shift if Dex doubled his purchases at each possible price? (Click to Select) e. Suppose that at a price of $14, the total quantity demanded increases from 22 to 32. Is this a "change in the quantity…

1. Given the supply and demand schedules for calculators shown below, what is the market’s equilibrium price?   Demand Schedule for Calculators   Supply Schedule for Calculators   Price ($) Quantity   Price ($) Quantity   50 0   50 16   40 4   40 12   30 8   30 8   20 12   20 6   10 16   10 3   1 20   1 0       Solution:

1. Consider the market for Netflix Subscriptions. Show graphically and explain using economic intuition, what happens to the market price and quantity in each of the following: a)  A popular show “Suits” gets taken out of the platform. b)  The price of Hulu subscriptions doubles. c)  After the effects of a) and b), you see that the price of Netflix subscriptions increases. d)  After the effects of a), what will happen if Netflix doesn’t lower their prices.   For each of the following situations, decide whether Shane has diminishing marginal utility. Explain. a) The more economics classes Shane takes, the more he enjoys the subject. And the more classes he takes, the easier each one gets, making him enjoy each additional class even more than the one before. b) Shane likes loud music. In fact, according to him, “the louder, the better.” Each time he turns the volume up a notch, he adds 10 utils to his total utility. c) Shane enjoys watching the show “Stranger Things”. He…

1. Consider the market for Netflix Subscriptions. Show graphically and explain using economic intuition, what happens to the market price and quantity in each of the following: a)  A popular show “Suits” gets taken out of the platform. b)  The price of Hulu subscriptions doubles. c)  After the effects of a) and b), you see that the price of Netflix subscriptions increases. d)  After the effects of a), what will happen if Netflix doesn’t lower their prices.   For each of the following situations, decide whether Shane has diminishing marginal utility. Explain. a) The more economics classes Shane takes, the more he enjoys the subject. And the more classes he takes, the easier each one gets, making him enjoy each additional class even more than the one before. b) Shane likes loud music. In fact, according to him, “the louder, the better.” Each time he turns the volume up a notch, he adds 10 utils to his total utility. c) Shane enjoys watching the show “Stranger Things”. He…

16. Revenue with Substitutable Products. The Camera Shop sells two popular models of digital single lens reflex (DSLR) cameras. The sales of these products are not inde- pendent; if the price of one increases, the sales of the other increases. In economics. these two camera models are called substitutable products. The store wishes to estab- lish a pricing policy to maximize revenue from these products. A study of price and sales data shows the following relationships between the quantity sold (N) and price (P) of each model: NA 195 0.6PA + 0.25PB N = 301+0.08PA-0.5PB a. Construct a model for the total revenue and implement it on a spreadsheet. b. Develop a two-way data table to estimate the optimal prices for each product in order to maximize the total revenue. Vary each price from $250 to $500 in incre- ments of $10.